Commodity prices aren't making headlines today. But prices are falling... and traders are paying attention.
We looked at this idea broadly last week. In general, the commodities sector is hitting multiyear lows. And that points to more losses in the coming months.
This rapid decline is also setting the stage for future opportunities, though. More folks are getting increasingly bearish on many individual commodities... And right now, bearishness is at the worst level on record for the soybean market.
That doesn't give us a buy signal today. But once sentiment reverses, history shows 14% upside is possible.
If you think most folks aren't interested in commodities, that's nothing compared to the soybean market. Almost no one is paying attention to this investment.
Soybean prices don't matter much to our day-to-day lives. No one really thinks about them. And even in the most extreme situations, you likely won't see this commodity making many headlines.
Still, those moments can present opportunities for investors. And one such opportunity is setting up right now.
To see it, I turned to one of our most tried-and-true sentiment indicators: the Commitment of Traders ("COT") report. This weekly report tells us what futures traders are doing with their money.
We love the COT because it uses real money flows... real dollars changing hands. These folks are speaking with their investment dollars. And that's the most accurate way to get a feel for sentiment in any market.
The COT is a useful contrarian tool at extremes. And right now, the COT for soybeans is at its most negative level in history. Take a look...
The soybean COT was near a neutral "zero" reading in mid-December. But sentiment has collapsed since then.
The most recent data shows traders are betting against soybeans to the worst degree ever. And that's the beginning of an opportunity for higher prices.
To see it, I looked at each situation where a negative COT in one week flipped to a positive COT the week after. That has happened 33 times since the data began. And those instances have led to big gains for soybeans. Check it out...
This commodity hasn't soared since the turn of the century. The annual gain from a typical buy-and-hold strategy has been 4%. But you can do much better by buying after bearish sentiment reverses...
Similar setups led to 3.5% gains in six months and 13.8% gains over a year. That's more than triple the typical annual return for soybeans.
Now, it's important to note that this particular signal hasn't flashed yet. We may have the most bearish sentiment on soybeans in history... But prices aren't likely to bounce back until the COT turns positive. And we're not there yet.
Like commodities as a whole, soybean prices could see more pain in the near term. But once sentiment gets less bearish, soybean prices should head higher.
The Teucrium Soybean Fund (SOYB) is a simple exchange-traded fund that tracks the soybean market. Once sentiment and prices begin to reverse, this would be a great way to gain exposure to this often-overlooked commodity.
Good investing,
Brett Eversole
P.S. My friend and colleague Dan Ferris – who is also the longest-serving analyst at Stansberry Research – is extending a rare invitation...
Just like today's story, we'll likely see more opportunities in specific beaten-down investments. And Dan is all over this idea. His outlook on one misunderstood corner of the market could transform the way you make (and think about) money... not just this year, but over the next five years or more of a long-term "hypercycle" boom.
This invitation won't be available for long. So check out the full story before March 8... Get the details here.
Further Reading
Despite hitting new highs, many investors have given up on gold lately. But according to history, that's the wrong move today. Similar periods of strength suggest that the metal's recent breakout is only the beginning... Read more here.
Investors couldn't dump biotech shares fast enough last year. But now, the tides are turning for this boom-and-bust sector. And if the trend continues, bigger gains are likely ahead in the coming months... Learn more here.